Downsizing has a negative effect on corporate memory and employee morale, disrupts social networks, causes a loss of knowledge, and disrupts learning networks. As a result, downsizing risks handicapping and damaging the learning capacity of organizations. Further, given that downsizing is often associated with cutting costs, downsizing firms may provide less training for their employees, recruit less externally, and reduce the research and development budget. Consequently, downsizing could “hollow out” the firm’s skills capacity.

There are two things to say about downsizing: It seldom works and is often done incorrectly.

When you try to measure people's performance, you have to take into account how they are going to react. Inevitably, people will figure out how to get the number you want at the expense of what you are not measuring, including things you can't measure, such as morale and customer goodwill. ...incentive plans based on measuring performance always backfire. Not sometimes. Always. What you measure is inevitably a proxy for the outcome you want, and even though you may think that all you have to do is tweak the incentives to boost sales, you can't.

The problem with most incentive systems is not that they are too complicated -- it's that they don't explicitly forbid the kind of shenanigans that will inevitably make them unsuccessful.

Some people seem to have unlimited self-generated morale. These almost always succeed. At the other extreme, there are people who seem to have no ability to do this; they need a boss to motivate them. In the middle there is a large band of people who have some, but not unlimited, ability to motivate themselves. These can succeed through careful morale management (and some luck).

Organizations, like individuals, need to be in flow to operate smoothly. An organization achieves this state of equilibrium through its management layers. In other words, an organization can approach the flow zone when the positions in its hierarchy have clear, accountable tasks that are aligned to its mission and that match the skills and reach of the people at each level. Or as University of Auckland Business School lecturer Judith McMorland puts it, the key diagnostic can be summed up in two simple questions: “Are you big enough for your job?” and “Is your job big enough for you?” If the answer to both is “yes” throughout the organization, then it is in flow.

If a job has its own discrete decision-making responsibilities, different from those in positions above and below, then the individual in that job feels accountable. He or she has a clear understanding of who the boss is, what the boss expects, why the boss needs particular results, when those deliverables are needed, how those deliverables fit with the organization’s goals, and how to accomplish them. The individual is then free to “own” the job, to organize it accordingly, to deploy the resources at hand, and to enter the flow zone.

An organization’s conception of human capital is manifest in its culture, and culture is inculcated by process and behavior guidelines that are passed along as one employee imitates another. The process is most effective when the capacity for self-expression in the ranks is consonant with expectations set at the top and an autonomous spirit flourishes.

If you hire people who are smaller than you are, we shall become a company of dwarfs. If you hire people who are bigger than you are, we shall become a company of giants.

Labour markets move more slowly than people think. People in their work lives may like this idea of being 'footloose and fancy free', but in the whole of their lives, they're a little less radical. We’re revolutionaries with mortgages. So don't assume that everyone is 23 and wants to go someplace new tomorrow.

Incentives are good in principle, but did Bear Stearns get competent risk management in return for the $4.4 billion bonus pool it distributed in 2006? Does any organization have to give its CEO a $40 million bonus to secure his services? If you pay people enough money to make any future payment beside the point, don’t be surprised when they take vast long-term risks for short-term wins. In almost any pattern, overshooting produces negative returns.

Despite years of conversation, I don’t think the HR function has done a good job of attracting enough business-minded professionals into HR. And until we do that, until we make HR a desirable career, or at least a valuable segment in the journey of one’s career—one that has real business impact—we won’t raise the caliber of talent in the function. And until we do that, HR will not have the impact that it ought to have. I also think we have a little bit of a chicken-and-egg problem when it comes to HR. Because there are many people in leadership-operating roles who have never worked with a good HR executive, they don’t understand that what they’re getting is not good enough. And so they don’t demand better.

A key myth of performance management is that the objective of the performance-appraisal discussion is to gain the employee’s agreement. It’s not. If the manager has applied tough-minded, demanding standards, it’s unlikely that the individual will agree. That’s OK—the objective of the meeting is not to gain agreement. The tougher the manager’s standards, the less likely it is that agreement will occur. The objective of the performance-appraisal discussion is to get the individual to understand the reason his performance was rated the way it was, not to gain his agreement on the accuracy of that rating.

A common myth [of performance management] holds that asking the employee to complete a self-assessment using the company’s form, or including the perspectives of others gained through a 360-degree feedback system, is a good idea. It’s not. It’s a bad idea and needs to be stomped out.

Research consistently demonstrates that individuals are notoriously inaccurate in assessing their own performance, and the poorer the performer, the higher (and more inaccurate) the self-assessment.

“Know thyself” may be good philosophical advice, but in assessing how good a job you’ve done, your boss generally knows better than you do.

Peter Drucker’s thirty-year-old concept of creating a “manager’s letter” probably remains the best performance-management technique to use with senior executives. Each executive writes an annual letter to her superior, spelling out the objectives of her own job and those of the superior’s job as she sees them. She then sets down the performance standards she believes are being applied to her. She lists the goals she intends to accomplish, the major obstacles to achieving them, and the support she needs from her superior and the company. Finally, she spells out what she intends to do during the next year to reach her goals. If her superior accepts this statement, this “manager’s letter” becomes the charter under which the executive then operates.

Although the actual results an individual produces may be quantifiable, the way she got those results, and the extent to which she modeled the organization’s values in generating them, aren’t subject to numerical measure. But behavior and adherence to values can certainly be described, and those descriptions of performance, supported by examples, are certainly objective.

Every person who works for an organization wants the answer to two questions. First, What is it that you expect of me? Second, How am I doing at meeting your expectations?

Most companies are operated in ways that downplay the importance of people. They have bureaucratic structures that optimize the value of financial capital, machinery, equipment, and natural resources, at the expense of talent development and the opportunity for people to use their skills. Work processes are designed with simplified, standardized jobs, and individuals are controlled through well-defined hierarchical reporting relationships, highly monitored bud­gets, and close supervision.

The contrast between what executives say about the importance of people and how they manage their organizations is unfortunate at best. At worst, it is a major contributor to poor organizational performance.

Is your goal to get the most out of people or the best out of people?
You typically can't get both.

Treat a man as he is, and he will remain as he is. Treat a man as he could be, and he will become what he should be.

Leadership development is ensuring "that people in leadership roles have the competence to determine and to carry out the [company's] strategic imperatives. If competence is acquired through experience, then it is the strategy of the business that determines which experiences are necessary to build it. The crucial links . . . are from the business strategy to the leadership challenges it suggests to the experiences given to its talented people."

You can’t do better than what Warren Buffett said to the people at Salomon Brothers many years ago: “If you lose money for us, we will be forgiving. If you lose reputation for us, we will be ruthless.” You make the situation clear by stating your intentions and you back them up in the design of your compensation program. If there’s any suggestion of bad behavior, the money goes back to the company. That’s the only fair and credible way. Any CEO who won’t come in on that basis is somebody you don’t want to bet on because he is not willing to bet on himself.

There is no point in trying to assess people's abilities without first finding out what they care about. The same goes for trying to assess things such as "leadership potential" or "creativity" out of context. One has always to ask, in relation to what?

As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. This requires considerable tolerance. …Mistakes will be made. But if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it undertakes to tell those in authority exactly how they must do their jobs.

In hiring and managing individual employees, it's important to understand what is difficult to change (talent) and what is more easily changed or acquired (knowledge and skills). Once you hire someone, you are largely stuck with their talents, whereas you can still impart new skills and knowledge. Without a clear understanding of these two different aspects of ability, you will have an incomplete picture of how talents play into hiring decisions and could become more prone to making hiring errors.